The dollar hit a seven-year high against the yen yesterday and US Treasury yields rose ahead of the release of minutes from the latest Federal Reserve meeting, which investors say will show a US central bank ready to raise interest rates next year.
Investors want to see if the comments from members of the Federal Open Market Committee during their October meeting affirm the more hawkish policy statement released at the time.
The Fed noted after the talks that the US labour market was improving and inflation was unlikely to stay subdued for long.
“Such a message will likely send US rates and the dollar higher and increase expectations for a more material shift in the FOMC bias at the Dec. 19 meeting,” said Petr Krpata, a currency strategist at ING in London.
The dollar rose as high as 117.78 yen, its highest since October 2007, and was last trading at 117.74.
The yen also weakened to a six-year trough against the euro . The euro traded near break-even against the dollar, rising 0.11 per cent $1.2550.
Yields on benchmark 10-year US Treasury notes rose to 2.3541 per cent, pushing their price down 9/32.
German Bund yields rose after Bank of England minutes and data hinting at a rebound in the US housing market suggested both UK and US rate hikes could be in the cards. Ten-year Bund yields, the standard for euro zone borrowing costs, rose four basis points to 0.84 per cent.
Treasuries also were pressured by Alibaba Group Holding’s expected $8 billion corporate bond deal, traders said, as asset managers sold Treasuries to make way for that debt. Global equities markets fell, pulled lower by US and European markets. A strong dollar weighed on Wall Street because of its impact on US exports and commodity prices, said Rick Meckler, president of hedge fund LibertyView Capital Management in Jersey City, New Jersey. Only a big surprise from the Fed minutes will roil markets, Meckler said.
“The Fed has done really a very good job of telegraphing every move, all the way through,” he said. “The bigger surprises have come internationally, where you see moves in Japan and in Europe that aren’t completely expected,” Meckler said.
MSCI’s all-country world index fell 0.18 per cent to 421.86 while the pan-European FTSEurofirst 300 share index fell 0.02 per cent to close at 1,359.88. The Dow Jones industrial average fell 6.71 points, or 0.04 per cent, to 17,681.11. The S&P 500 slid 3.74 points, or 0.18 per cent, to 2,048.06 and the Nasdaq Composite lost 16.48 points, or 0.35 per cent, to 4,685.97.
Brent oil gained and rose above $79 a barrel on speculation the Organisation of the Petroleum Exporting Countries may act when it meets next week to stabilise prices that have fallen by almost one-third in five months.